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Sunday, May 29, 2005

Washington Post Article: 'Most DC Buyers Choose Interest Only'

In today's WashPost there is a front page article about how most DC homebuyers are using interest only loans. Here are the highlights.

"The loans are attractive because their intitial monthly payments are tantalizingly low - about 1,367 a month for a 320,000 mortgage, compared with about 1,842 a month for a traditional fixed-rate loan. f home prices fall, though borrowers could lose big"

About 54% of home buyers in DC (just the city, not the sorrounding suburbs) purchased their homes using interest-only loans so far this year."

"Just 5 years ago, only 2 percent of home=purchase loans in the Washington area were interest only."

"Mark Zandi chief economist of Economy.com said buyers are turning to interest only loans because real estate has become so expensive partially because of the use of these new products". Exactly

" 'It largely reflects the inability of famililies to afford a home with a plain-vanilla mortgage.' Zandi said 'This is a way for people to get into what are extremely expensive homes'

Finally, there was an interview with a family where husband and wife are both teachers. They are looking to buy a townhouse in Woodbridge, VA ( a far out suburb of DC). Twice they made offers on a townhouse but were outbid. However, "they could stretch their income further if they considered a interest-only loan." But is "really dangerous, You don't know what interest rates will do. " said the husband "It would be great, yes, to get a property but bad to be destitute "